Amended guidelines issued by Malaysian tax authorities where a new “economic substance” requirement has been introduced to qualify for tax exemption of foreign sourced dividend income of resident companies. Foreign dividend income received in Malaysia by a resident company from January 1, 2022 until December 31, 2026 is exempted from tax subject to the following conditions:

a) Dividend income has been subjected to tax in the country of origin which the income arises;
b) The headline tax rate in the country of origin is not less than 15%; and
c) Comply with the economic substance requirements.
The new “economic substance” requirement has been introduced where a resident company shall be regarded as having economic substance if it:

1. employs an adequate number of employees with necessary qualifications to carry out the specified economic activities in Malaysia; and
2. incur adequate amount of operating expenditure for carrying out the specified economic activities in Malaysia.